For the past year, former McKinsey consultant Todd Morgan, together with his colleague Doug Ash, ex-managing director of global freight forwarder MSAS, have been touring airline and forwarding offices across the world, refining plans for a global Internet-based trading system for air cargo capacity.
The system, called GFX, is to be tested early this year. It promises to bring air cargo all the benefits of e-business - reduced transaction costs, speedy quotes and a wealth of transaction data that will enable airlines and forwarders to implement more effective pricing.
If successful, the idea will revolutionise an industry that remains rooted in the telephone and facsimile age. "You call up eight airlines to get a quote," says Geoff Corpe, global development director for MSAS. "One is engaged, the other promises to call back and, with another, you get voicemail." Despite MSAS being one of the world's top forwarders, Corpe estimates that it can take his staff 4-5h to produce a quote for one customer.
"With GFX, you will just press a button," he says. Forwarders can enter a wealth of detail about their freight, including weight, volume, type (general, perishable, or dangerous goods, for example), whether they want it to fly only on a freighter, and so on. Interested airlines then come back with quotes. If the forwarder is not happy with those, it has the option of entering a "revenue market" and offering a higher price to move a shipment in peak periods, or a lower price when capacity is short.
GFX also overcomes the perceived wisdom in air cargo that electronic-capacity trading would never work because airlines would never reveal on a web site commercially sensitive information. On GFX, it is up to airlines how much capacity they reveal. They have the option to indicate merely that they have enough for the consignment in question. Also, all quotes on GFX are specific to the forwarder making the request. The site will not be open to the general public and other forwarders (or airlines) will not have access to the information. That means airlines will be able to offer space to a particular forwarder at a pre-agreed discount without any breach of commercial confidentiality.
Will the model work?
The question now is whether it will work. In GFX's favour is a general feeling in the industry that it is time to get to grips with e-commerce. "After all, people all over the world are talking about e-commerce and we think there is a big future in it," says SAS Cargo. SAS was given a presentation in December, but has not yet decided whether GFX is the future. Other leading players are cautiously optimistic. GFX will not say which companies are in its forthcoming trial, but Emirates senior general manager cargo Ram Menen confirms that his airline is one.
As for forwarders, MSAS is enthusiastic enough. But others are less committed. Leading forwarder Emery will say only that it is considering GFX, and even Menen says Emirates has made no formal commitment. He is unsure whether GFX will be seen as a way to sell last-minute capacity or as something more substantial. At best, he expects to sell 30-50% of his capacity through GFX.
The most common criticism of GFX is that it might suit only the relatively small last-minute segment of the market. "Freight traffic is not like passenger traffic," says Hugh Doyle, managing director freight management at Unisys, who has wide experience of both. "On the passenger side, you have millions of customers who make decisions based on emotion. In freight, you can be the biggest airline in the world, but you still get most of your business from a few freight forwarders. Most airlines sit down with the major forwarders and plan block bookings two years in advance. Only 15% of capacity is free sale, so we are talking about a dumper's market."
But Morgan at GFX points out that the system's second phase will include a function enabling forwarders to book against their block allocations on a particular carrier. "It will become a tool for airlines and forwarders to manage and keep track of such allocations," he says.
Also relevant is the large number of requests for quotes that a major global forwarder such as MSAS receives each year. "It is amazing how many customers want quotes," says Corpe. He estimates that MSAS makes 200,000 calls a year to airlines, not just for booking, but to update information on a shipment's quantity or weight. "GFX could remove a lot of that drudgery and allow us to refocus staff time on things that add value, like performance monitoring," he says.
A more serious criticism of GFX is that it is focusing on the wrong market. The phenomenon of the past 10 years in air cargo has been the rise of the integrators - FedEx, UPS and so on - which offer a door-to-door, time-definite service direct to the shipper. They have long been taking bookings on the Internet and have even moved beyond that into offering e-commerce software.
Looking for ways to compete, a group of leading forwarders and airlines came up in 1996 with Cargo 2000, a body that set out to devise a seamless, door-to-door cargo system for traditional air cargo. The Master Operating Plan (MOP) that followed in 1999 aims to create a computer system that would enable a forwarder to build a complete route map of a consignment journey at the time the shipper calls for a quote, including airline, flight time, arrival time and delivery time to the consignee.
GFX and many of its supporters dismiss Cargo 2000 as a purely operational initiative, in contrast to the transactional focus of GFX. But Doyle, one of the advisers to Cargo 2000, disagrees. "The whole premise of the MOP is that nothing moves which is not already booked into every stage of its journey from the beginning," he says.
Doyle sees a widening divide between a commodity market on the one hand, selling on price and doomed to falling yields, and a time-definite market on the other, which adds value and offers guarantees - the integrator model. "It is the commodity approach that is killing the traditional industry. And, however you turn it, it seems to me that GFX is at this end of the market," he says, arguing that the time-definite market is the "fastest-growing business in the world".
Just how many airlines have the vision to go for such a market is unclear, however. Cargo 2000 has appeared to lose momentum recently, but some carriers have taken matters into their own hands. Lufthansa Cargo has spent the past two years introducing time-definite services and making partnerships with leading forwarders to create an integrated door-to-door product. Retiring LH Cargo chairman Wilhelm Althen foresees the next stage as IT integration with such partners, a move that would leave little room for GFX.
Another possible criticism of GFX is that it leaves shippers out in the cold, but in the Internet age such misgivings could be outdated. Brian Clancy, president of US consultancy MergeGlobal, predicts that the Internet will cut out forwarders from the air cargo chain if they did not add value.
This trend is already evident. Althen says Lufthansa plans to sell its time-definite products direct on the Internet to anyone who wants to buy them, including shippers prepared to deliver their products to the airport. SAS Cargo, meanwhile, put its express Priority product on the web in November for Scandinavian customers. This was an experiment to test the e-commerce waters, says Stein Eidsvaag, manager, business development and marketing. Althen and Eidsvaag see such offerings as a minority market, but the sites represent an interesting toe in the water.
It is early days for the SAS site, but Eidsvaag says that, so far, it has been used more for getting price quotes than for bookings. This is interesting, because one jealously guarded secret that shippers would love to unveil is how much forwarders pay airlines for capacity. The Internet age may reveal the answers. One web site - Webfreight - is offering door-to-door quotes from the UK to 2,000 destinations worldwide. The company is opening a US site this month and aims to go global.
Webfreight is essentially an online forwarder, but the interesting thing from a shipper's point of view is that it offers a detailed breakdown of its prices, naming the carrier involved, giving the rate, the cost of cutting an air waybill, the price of customs clearance, and so on. "Our aim is to give the shipper transparency," says managing director Roy Parmenter, who admits the site is used by shippers as a way of checking the quotes they are given by other forwarders.
If the genie of shipper transparency gets out of the bottle, will the whole model upon which GFX is based become obsolete? Says Emirates' Menen: "The relationship between shipper, forwarder and airline will change in the next three to four years, so anything you do just for forwarder and airline rather than for the whole supply chain will be wrong. But GFX will evolve. This is just the start."
Source: Airline Business